Oil News Ahead of the Saudi Oil Summit

Tuesday, UAE Oil Minister Mohamed al-Hamli said a shortage of oil refineries is the main cause of record oil prices. He indicated that industrial nations have not built new refineries due to environmental concerns and this has caused a shortage in refined products and elevated prices at the pump.
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Also on Tuesday, Iran’s President Mahmoud Ahmadinejad said oil prices are being manipulated by “invisible hands” in a “fake way” for political and economic reasons. At an OPEC conference in the Iranian city of Isfahan, Ahmadinejad said the price rise is “completely fake and imposed.” He said the price increases are happening when “the market is full of oil and the growth of consumption is lower than the growth of production.” He said the price rise was due to the lower value of the dollar. "The hard currency reserves of OPEC countries have been heavily affected" by the fall in the dollar, he said. "I repeat my suggestion made six months ago at the OPEC summit in Riyadh to create a basket of credible currencies which would be the basis for oil transactions," said Ahmadinejad. "Or alternatively, that OPEC countries create a new currency for their transactions."
At the same meeting, Iran's OPEC representative, Mohammad Ali Khatibi, said Iran opposed any unilateral move by Saudi Arabia to raise its crude oil output without a consensus of OPEC member states. "Any output increase should be approved in the Organization of Petroleum Exporting Countries' ministerial meeting." Khatibi said, "If Saudi Arabia decides to increase its crude output unilaterally, it will be a wrong move."
Ironicaly, Iran’s opposition to increased Saudi production comes at the same time Iran plans to sell increased crude itself. National Iranian Oil Company official, Hojjatollah Ghanimifard, said yesterday that exports from the country will rise by 300,000 barrels per day to at least 2.5 million bpd this month and next as the country sells off excess oil it had been storing in tankers offshore because of refinery maintenance shutdowns. "The floating barrels will be cleared up by mid-August, we hope," Ghanimifard said. Ghanimifard did not say how much oil Iran is storing, but some analysts have estimated the amount at about 30 million barrels. Iran hopes to sell the oil at the current high prices and the Saudi increased production along with their planned sales cut cause a price reduction.
The refinery shutdowns and high prices have a major impact on another sector of the Iranian oil market – the domestic refined product market. Iran's government plans to ask parliament for $7 billion to pay for increasingly expensive fuel imports. Hojjatollah Ghanimifard, says the amount needed during the Iranian year that ends in March 2009 could rise even further if international gasoline and other fuel prices continued to rise.
He told the daily Tehran-e Emrouz newspaper in an interview on Monday that consumption was estimated at 80 million liters in Iran, above a figure of roughly 75 million liters given by officials when rationing was introduced for motorists in June 2007.
Officials had previously said both consumption and imports fell sharply after Iran launched rationing to curb soaring consumption which had risen well beyond its ability to refine crude, forcing the government to rely on expensive imports.
"If the (fuel) prices continue to rise the budget needed to import will be more than $7 billion. It will be around $9 billion," Ghanimifard was quoted as saying.
Iran's parliament authorized in February the Oil Ministry to import gasoline and gas oil for the equivalent of $3.2 billion in the fiscal year that started on March 21, but Monday's report made clear this would not nearly be enough.
Under the rationing scheme, all fuel had been sold at the heavily subsidized price of 1,000 rials (about 11 US cents) a liter. But the government revised the system starting from March to let drivers buy fuel above their 120 liter a month quota at 4,000 rials a liter.
One official said in October imports would decline by at least 20 percent to $4 billion in the 2007-08 Iranian fiscal year, from $5 billion previously.
In May, another official said Iran expects to import about 20 million liters of gasoline per day during the 2008-9 year, less than half the amount it would have imported had it not launched rationing a year ago.
But that figure was still 5 million liters higher than an import estimate given in February, before Iran allowed the sale of extra, higher-priced gasoline outside the rationing system.
Meanwhile Iran has more crude following an announcement last Suday that Iran has discovered a new sub-field within its southwest Jofeir oilfield that is expected to boost Jofeir's oil output to 33,000 barrels per day. Iran's new discovery is estimated to have reserves of 750 million barrels, according to Iran's Oil Minister, Gholamhossein Nozari.
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Meanwhile, Saudi Arabia will host a meeting on June 22 for oil producing and consuming countries where ways to control soaring energy prices will be discussed. America will participate as both a major producer and consumer. The US will send a delegation to Sunday's meeting in Jeddah, led by US Energy Secretary Samuel Bodman. Venezuela said it would not attend the meeting. China has indicated its Vice President, Xi Jinping, will attend. China is becoming a major oil consumer, accounting for about 40 percent of the growth in global oil consumption but recent earthquakes and bad weather have temporarily reduced China’s oil needs. British Prime Minister Gordon Brown will also attend the meeting. Iraq’s Oil Minister, Hussain al-Shahristani, said he will not attend the meeting.
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Iran and Malaysia's Amona Company have signed a $1.5 billion deal to develop the Resalat oilfield in the Persian Gulf. The Malaysian company will complete the project within three and a half years under terms of the contract. Iranian officials say that on completion of the project Resalat's daily output would increase from the current 8,000 barrels a day to 47,000 barrels a day. Resalat oilfield is located about 50 miles from Lavan Island in the Persian Gulf.
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Oil prices briefly shot up to $137 a barrel on world markets today after the Anglo-Dutch oil company Shell reported it had shut down production at a major offshore oil facility in Nigeria because of another militant attack. "We shut down production at the Bonga oilfield following an attack by unknown militants this morning," Shell spokesman Precious Okolobo told AFP. Violence in the southern Delta region has reduced Nigeria's total oil production by a quarter since January 2006.
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Reliance Industries, India's largest company, is increasing crude oil imports from Saudi Arabia as it seeks to secure supplies in the midst of rising demand in India and the rest of Asia, P.M.S. Prasad, president of the company's oil and gas business told Reuters. The company, which is building the world's largest refinery, is boosting purchases by at least 90,000 barrels a day, accounting for 30% of Saudi Arabia's output increase of 300,000 barrels a day this month.
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Oil revenues for Saudi Arabia, Kuwait and the UAE combined will be twice that of the US GDP if the high price of crude continues according to a Saudi investment company. If the annual average price hits $150, then the three countries will have a capital flow of $25.7 trillion, with $16.6 trillion going to the kingdom and the rest split evenly between Kuwait and the UAE. The GDP in the US, said Brad Bourland, Chief Economist and Head of Research at Jadwa Investment in Saudi Arabia, is $13 trillion. If the average price settles at $100, the three GCC countries will earn $17.2 trillion.
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An official in In Iraq’s Naft Al Janoub (Southern Oil Co.) confirmed yesterday that Iraq oil exports from Basra regained their normal level after storms had suspended oil tankers activity for 4 days. Exports were completely when storms stopped tankers from anchoring in Basra port at the beginning of the week. However, the official said that the amelioration in weather conditions allowed two tankers to anchor in the port on Tuesday.

Muqtada as Sadr Blinks

Sunday, Muqtada as Sadr ordered his militia, the Mahdi Army to pull out of the street fighting in Basra and Baghdad. The Shi’ite leader issued a statement via his office in Najaf. "We want the Iraqi people to stop this bloodshed and maintain Iraq's independence and stability," said a statement bearing Sadr’s seal. "For that we have decided to withdraw from the streets of Basra and all other provinces."

He said it was his "legitimate responsibility to stop the bleeding of Iraqis, to maintain the reputation of Iraqi people, the unity of land and people, to prepare for its independence and liberation from the dark forces and to quell the fire of division by the occupier and its followers." Sadr also distanced himself from those "who carry weapons and target the government, the offices of the government and its parties." However, he demanded that the "random" arrests of his followers must be stopped by Iraqi governmental security forces.

Iraq’s Prime Minister, himself a Shi’ite, welcomed Sadr’s order as a “step in the right direction.” Maliki has personally been directing the government offensive in Basra.

The same can not be said of Muqtada as Sadr. Sadr has spent most of the last year living in Teheran, Iran and commuting several times a week to Qom. There he is undergoing religious studies in the city’s famous Shi’a seminaries. It is an effort to enhance his religious credentials. It is thought that he issued his order to the Mahdi Army from Qom.

Leadership by fax when his militia is engaged in heavy combat with Iraqi, American and British forces will undermine his military credentials among his followers who have suffered hundreds of casualties. The same happened in their fighting in 2004. Then, like now, when his forces were losing - he blinked. This will have important consequences for the future of Iraq.

Wrap Up of a Busy Week in the Middle East

This last week has seen some interesting developments and the coming weekend may be a bit anti-climatic. Early in the week, US Vice President Cheney visited the region. He talked about oil, Iran, Syria/Lebanon, and finally the Palestinian/Israel situation.

In Yemen, Fatah and Hamas signed a reconciliation agreement. The Yemeni agreement is a framework for a dialogue between Hamas and Fatah that, in theory, returns the situation in both Gaza and the West Bank to the status that existed prior to June 2007. Supposedly, there are no preconditions to the start of the cooperation. The office of Palestinian President, Nabil Abu Rudaina, said that the deal would remain invalid until Hamas renounces its control over the Gaza Strip.

Thursday, seventeen of the Arab League’s 22 member states sent their Foreign Ministers to Damascus for preparatory talks ahead of this weekend’s Arab Summit. Syria called on the ministers to abandon the 2002 Arab peace proposal. In a major defeat to Syria, it was agreed at the meeting that the Saudi-sponsored peace initiative would remain the basis for Arab peace engagement with Israel.

Israel for its part announced that it was trying to restart peace talks with Syria. PM Olmert and another of his ministers separately told reporters about the new initiative.

Iraqi PM Maliki issued ultimatums to Shi’a militias in Basra to surrender within 48 hours and then backed up and extended it to ten days. It is unclear whether he had to do that because of political pressures or military exigencies.

Friday, U.S. Secretary of State Condoleezza Rice departed for the Middle East. She is scheduled to meet with Palestinian PM Mahmoud Abbas and other Arab leaders during her week-long trip. Abbas today met with Jordan’s King Abdullah ahead of his meeting with Rice and then went to Damascus.

Also today, Admiral William Fallon, the Commander of US Central Command stepped down after just one year on the job and into retirement following a long career. His public political statements and approach to Iran are believed by many to have been at odds with Washington’s civilian leadership. He was replaced temporarily by his deputy, US Army Lieutenant General Martin Dempsey.

Finally, the UN issued its 10th interim report by a panel headed by Canadian former prosecutor Daniel Bellemare saying a "criminal network" of individuals acted together to carry out the 2005 murder of Lebanese ex-premier Rafiq Hariri and many other attacks against anti-Syrian Lebanese figures perpetrated between October 2004 and December 2005. Bellemare was appointed in November to replace the Belgian Serge Brammertz as head of the UN group working to uncover who was behind Hariri's death in a Beirut car bombing. Brammertz' German predecessor, Detlev Mehlis, implicated senior officials from Syria. Damascus has denied any connection with Hariri's death or 20 attacks against anti-Syrian targets in Lebanon.

All these events set the stage for another failed Arab Summit set to commence Saturday in Damascus. Yemen, Iraq, Lebanon, Saudi Arabia, Bahrain, Morocco, Oman, Jordan, and Egypt will all send low-level delegations. Syria’s Foreign Minister inferred that those countries constituted an “American virus” and that their absence was a positive thing. In reality, it shows Syria’s increasing isolation, not only over Lebanon but also over its continued willingness to follow Iran’s lead at a time when the Arab states are nervous about Iran’s intentions in the region. The fact that Damascus trumpeted today’s arrival of the President of the Comoros Islands shows how desperate they are to give the appearance that a summit is actually taking place.

Turkey invades Iraq in surprise wintertime attack on the PKK

Iraq’s Foreign Minister Hoshyar Zebari has protested Turkey’s military incursions into Northern Iraq aimed at guerrillas of the Kurdish PKK terrorist group that is fighting for an independent Kurdish state. Zebari, himself a Kurd of Mr. Barzani’s Kurdish Democratic Party, decried the infrastructure damage and a lack of coordination and notification concerning the attacks. He said five bridges, including an important bridge over the Zab river, had been damaged despite previous Turkish assurances to Iraq that they would not damage infrastructure in their on-going battles with the PKK. He said Iraq had not been informed about the attacks.

It should be noted that the American White House acknowledged that the U.S. had been informed of the attack ahead of time but had urged restraint on the Turks. This will undoubtedly put some strain on the recently established arrangement under which Iraq, Turkey, and the United States share intelligence on the activities of the PKK.

The attack started just before noon on Thursday with a multi-hour air and artillery bombardment of suspected PKK facilities in isolated areas of northern Iraq. The attack reportedly caught the PKK completely by surprise and Turkey said more than a score of guerrillas were killed in the bombardment and many leaders were noted to be fleeing the border region to the south. Turkey has never before conducted a major operation against the PKK in mid-winter. Both sides usually sit out the winter and resume their operations when the snows melts in the spring.

Just after dusk, Turkish troops crossed the border on land. Some were also transported by helicopters into the rugged, snow covered mountains. Fighting has been centered around Hakurk and Sidekan, just south of the Turkish border town of Cukurca. Additional fighting has been reported in and around Bamerni, which is about 25 miles further west.

Turkish press reports say as many as 10,000 troops were involved in the multi-day operation but Zebari said only several hundred had crossed into Iraq. In what may have been an attempt at deception, the Turkish news also announced the return of their troops to their barracks on Friday, but afterwards Turkish artillery attacks resumed that evening and some fighting has been reported on Saturday.

Turkey claimed to have killed at least 79 members of the PKK and to have lost five soldiers in the fighting. The PKK say they have killed 24 Turks and had five of their fighters wounded. Given that much of the fighting has taken place by aerial and artillery bombardment, it is safe to say that neither side has a good idea of what damage they have inflicted on the other side. Turkey said nearly 4,000 PKK fighters had been in winter camps in the otherwise mostly uninhabited and inhospitable terrain.

President Bush is going to Israel

The White House announced on Tuesday that President Bush would visit Israel next month in order to try to advance peace efforts started during the Annapolis talks.

President Bush has made multiple trips to the MidEast but all his recent trips have been to Arab countries. He has visited Jordan twice since taking office.

This will be his first trip to Israel since assuming the Presidency. He visited it while Governor of Texas in 1998. During that visit, Ariel Sharon took him on a tour of the West Bank but he didn’t meet with any Palestinian officials. This time he will presumably meet with both Israelis and Palestinians and encourage them forward in their current efforts to find a common basis for peace.

It is not known if he will visit any other place in the MidEast but that may be possible. I am sure he will be tempted to hop over to Iraq and talk to the troops who are doing such a magnificent job there.